Thermax's Q3FY18 results (Upgrade to Neutral) - Order intake uptick to drive steady performance
Q3FY18 result highlights
- Consol. adj PAT +7% yoy to Rs586m: due to a low base & pick up in execution.
- Revenues increased 15% yoy at Rs11.2bn: led by a 21% yoy rise in standalone revenues. Energy segment revenues grew at a robust 18% yoy helped by a low base and pick up in execution as GST related issues receded. Enviro revenues +3% yoy while chemicals +7% yoy.
- Margin fell 44bps yoy to 8.5%: due to execution low margin orders in domestic business, rise in commodity prices and loss in Danstoker and China subsidiary. EBITDA +9% yoy to Rs955mn.
- Consol order intake at Rs14bn (+19% yoy): led by domestic intake (+28% yoy). This was led by an order win of Rs3.3bn in 3Q18 for BTG package for an upcoming chemicals plans in western India. Backlog at Rs55.6bn (+27% yoy; 1.2x FY18E revs).
- Order intake outlook: Enquiries have been high in O&G (BS6, refinery expansion), cement (WHRS, pollution control), chemicals, consumption related sectors (food, pharma, etc), fertilizers and emission norms for power plants. Further, intl orders are likely to pick up led by commissioning of its Indonesia plant.
Conf call highlights: (1) Expect margins to revive going forward; targeting double digit margin. (2) Sri city facility (absorption coolers) to commence in Q1FY19 (3) Danstoker sub to become profitable 4Q18 onwards, losses in China sub may continue (4) Dahej facility currently operating at 400 MT/month, would reach rate capacity (1000 MT/month) by Q1FY19
Key positives: Pick up in execution, robust order intake
Key negatives: Weak margins, losses in subsidiaries
Impact on financials: FY18 EPS cut by 1.5% to Rs25; FY19 EPS +4% to Rs31
Valuations & view
Thermax continues to focus on its core strength in products by widening product offering and expanded capacities. Further it has widened its presence in international markets by setting up a plant in Indonesia. We believe these steps will aid market share gains & order wins over the next few years. The recent order wins and likely orders from hydrocarbons, chemicals, etc with the international focus is likely to drive a 14% earnings CAGR over FY17-20E. However, valuations are expensive at 31x FY20E earnings, with lack of a broad based capex cycle revival. Hence, we upgrade the stock to a Neutral rating.
Thermax is engaged in the manufacture and development of a range of products and solutions in heating, cooling and power generation. In addition, Co. is engaged in the provision of water treatment, waste management and air pollution controlling services and the manufacture of related fuel and water chemicals. Co., through its subsidiaries, is engaged in the manufacture and sale of industrial boilers suitable for various fuels, CFBC boilers for power plants; painting equipment; measuring, checking and pressure instruments; process control and regulating instruments; and provision of lease, hire purchase, bill discounting and other finance related services.
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